When you need a mortgage loan that is more than 80% of the purchase price of your home, you must buy mortgage loan insurance. It protects the lender and Canadian federally regulated lending institutions will require it. CMHC stands for Canada Mortgage & Housing Corporation.
Having mortgage loan insurance means that if you, the borrower, default on your mortgage, the Lender is paid back by the insurer – CMHC or a private company. With the risk of losing their money removed, Lenders have the confidence to make mortgage loans to homebuyers of up to 95% of the purchase price of 1 -2 unit residential properties. However, borrowers with less than a 20% down payment must meet standards for a five-year fixed rate mortgage even when choosing lower interest or short-term mortgages. Borrowers buying a non-owner occupied property for speculation will require a minimum down payment of 20% for government-backed mortgage insurance.
The Process Your financial institution will fill out the required forms and will submit them to CMHC for you usually via “emili” which is an electronic system used between Lenders and CMHC.